Oxford Square Capital (US:OXSQ)2022-03-03 19:06Financial Data and Key Metrics Changes - For Q4 2021, the company's net investment income was approximately $4.5 million or $0.09 per share, an increase from $4 million or $0.08 per share in the prior quarter [7] - The net asset value per share decreased to $4.92 from $5.03 in the previous quarter [7] - Total investment income for Q4 2021 was approximately $10.2 million, up from approximately $9.8 million in the prior quarter [8] - The company recorded net unrealized depreciation on investments of approximately $700,000 or $0.01 per share, compared to net unrealized appreciation of approximately $5.6 million or $0.11 per share in the prior quarter [8] - Realized losses on investments were approximately $3.7 million or $0.08 per share, compared to realized gains of $1.7 million or $0.03 per share in the prior quarter [9] Business Line Data and Key Metrics Changes - Investment activity included purchases of approximately $23.3 million, sales of approximately $10.3 million, and repayments of approximately $1.6 million during the quarter [9] - As of December 31, the company held cash and equivalents of approximately $9 million [9] Market Data and Key Metrics Changes - The U.S. loan market showed stability, with loan prices slightly increasing from 98.62% of par to 98.64% of par [11] - The 12-month trailing default rate for the S&P/LSTA Leveraged Loan Index decreased to 0.29% by principal amount, down from 0.35% at the start of the quarter [12] - The distress ratio ended the quarter at approximately 0.99%, significantly lower than 2.7% at the end of December 2020 [13] - Primary market issuance reached approximately $113 billion for the quarter, bringing the total for 2021 to an all-time high of approximately $598 billion [13] - U.S. loan funds saw inflows of approximately $7.9 billion for the quarter, totaling approximately $33.8 billion for 2021 [14] Company Strategy and Development Direction - The company focuses on portfolio management strategies aimed at maximizing long-term total return, leveraging its status as a permanent capital vehicle to adopt a long-term investment view [14] Management's Comments on Operating Environment and Future Outlook - Management noted that the current environment of rising interest rates and commodity prices is relatively new, making it difficult to assess its impact on borrowers' revenue and margin growth [25] - The average LIBOR floors transitioning to SOFR floors are estimated to be around 50 to 75 basis points [26] Other Important Information - The Board of Directors declared monthly distributions of $0.035 per share for April, May, and June of 2022 [10] Q&A Session Summary Question: How have CLO equity cash flows historically behaved in periods of rising interest rates? - Management indicated that initially, the benefit of LIBOR floors diminishes, but over time, higher rates typically lead to higher returns on the equity component [20] Question: Have there been any stresses in borrowers' abilities to service their debt during past rate increases? - Management noted that in past instances, rising rates could lead to a decrease in the coupon or spread above the index, potentially affecting borrowers' financing decisions [24] Question: What are the average floors in the loan and CLO portfolios? - The average floors are estimated to be around 50 to 75 basis points [26] Question: Why is the effective yield in the CLO book significantly lower than cash yields? - Management explained that differences in portfolio characteristics, such as inception dates and aging, contribute to the disparity in yields [28] Question: Does the lower effective yield imply that cash yields are likely to come down in the future? - Management advised against drawing a linear implication from the effective yield being lower than cash yield [30]